Cloud Economics: Microsoft, Google & Amazon

It is time for another spreadsheet. To properly compare Microsoft, Google & Amazon, I am using the gross profit (instead of revenue) and net profit numbers. Gross profit is in some sense the real revenue of a company after paying its outside suppliers;  gross profit is what is available to pay its employees, pay the rent and so on. For a software company, the cost of goods sold is close to zero, so most of the revenue is gross profit. But for a retailer, as much as 70-80% of revenue goes to its suppliers, so gross profit is the better measure of the economic productivity the company achieves. The numbers below use rough annualized estimates based on the most recent quarter.


Do you notice the dramatic difference? Google and Microsoft are in another planet altogether compared to Amazon. The numbers really illustrate Amazon’s competitive strategy, to quote Nick Carr:

Bezos goes on to note that Amazon’s retailing operation is “a low gross margin business” compared to software and technology businesses, which “tend to have very high margins.” The relatively low profitability of the retailing business gave Amazon the incentive to create a highly efficient, highly automated computing system, which in turn could become the foundation for a set of cloud computing services that could be sold at low enough prices to attract a large clientele. It also made a low-margin utility business attractive to the firm in a way that it isn’t for a lot of large tech companies who are averse to making big capital investments in new, low-margin businesses.

“On the surface, superficially, [cloud computing] appears to be very different [from our retailing business],” Bezos sums up. “But the fact is we’ve been running a web-scale application for a long time, and we needed to build this set of infrastructure web services just to be able to manage our own internal house.”

Microsoft’s announcement is interesting from a technology point of view, but it is hard to see how the economics would work for them against Amazon. It is very hard for companies to go down the value chain for growth, so I am skeptical Microsoft would accept Amazon-like margins gladly.

1 Reply to “Cloud Economics: Microsoft, Google & Amazon”

  1. […] year. So, we’re getting in the game.” There’s a lot still to do. It’s early stage, no one knows if it will pay, and anyway. do you trust Microsoft? But while Azure is bad, the planned Office-on-the-Web […]

  2. […] year. So, we’re getting in the game.” There’s a lot still to do. It’s early stage, no one knows if it will pay, and anyway. do you trust Microsoft? But while Azure is bad, the planned Office-on-the-Web […]

  3. RP, I agree with you on the market dynamics. But the cloud is already slipping beyond the grasp of Windows. There isn’t a single internet company of any size (excepting Microsoft, of course) that uses Windows in their data center. So I am not sure Windows in the cloud is going to preserve their desktop dominance. Now, office in the cloud, that is another matter!

  4. RP, I agree with you on the market dynamics. But the cloud is already slipping beyond the grasp of Windows. There isn’t a single internet company of any size (excepting Microsoft, of course) that uses Windows in their data center. So I am not sure Windows in the cloud is going to preserve their desktop dominance. Now, office in the cloud, that is another matter!

  5. I think you fail to include market dynamics in your conclusion. Microsoft’s stranglehold over the desktop will crumble if they don’t offer a “Windows in the Cloud”. Not everything is about margins, and MS has understood that VERY well.

  6. I think you fail to include market dynamics in your conclusion. Microsoft’s stranglehold over the desktop will crumble if they don’t offer a “Windows in the Cloud”. Not everything is about margins, and MS has understood that VERY well.

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  8. […]    这是zoho的开发者sridhar写的一篇博客(看原文点这里)。既然zoho事实上也是一种云运用,那它的博客就有点内行人看门道的意味了。 […]

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